Navigating the world of homeownership can be daunting, particularly when dealing with an existing mortgage. One method gaining popularity is the use of equity release to pay off mortgage debt.
This process, though complex, can provide homeowners with significant financial relief when executed correctly.
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Homeowners aged 55 and over can use equity release to pay off an outstanding mortgage balance. This is done by taking out a lifetime mortgage secured against the property.
The equity release provider pays off the mortgage, leaving the homeowner with a new lifetime mortgage. This can eliminate monthly repayments, providing homeowners with greater disposable income.
However, interest will accumulate over the lifetime of the loan, meaning that the total debt owed will increase over time.
Seeking independent financial and legal advice is essential, as opting for a lifetime mortgage could substantially reduce the property equity available.
Another method is an interest-only mortgage, where the homeowner makes monthly payments. These payments cover the interest on the loan secured against the property. The loan amount, also referred to as ‘capital’, is then repaid when the property is sold.
An equity release loan can also be used to pay off a mortgage early. This is especially of interest for those who might want to end their mortgage term before its official date.
However, before you make this decision, make sure you are informed of any early repayment charges. These charges can sometimes apply if you decide to repay your mortgage early with the released equity.
Another advantage of using equity release to pay off a mortgage is that it can free up disposable income for homeowners. This can provide a more comfortable retirement income, especially for those on a fixed income.
Not everyone is eligible for equity release. You must be over the minimum age of 55 and under the maximum age of 95, own your home, and your home must be worth at least £70,000. Your property must be worth a certain amount in order for it to be accepted as security. This means that it may be subject to a home survey, and some essential repairs may need to be carried out in order for it to be accepted by the equity release lender.
Normally, you must own your home in its entirety, meaning that you do not have any outstanding mortgage payments on your original mortgage.
However, some lenders will allow you to take out plans in which it is agreed in the conditions of the plan that you will use the released equity to pay off your outstanding debts.
The two main types of equity release schemes in the UK are lifetime mortgages and home reversion plans.
With a lifetime mortgage, homeowners can borrow money against the value of their property. The loan and accrued interest is repaid when the homeowner passes away, or moves into long-term care. Alternatively, home reversion plans involve selling all or part of your home to a provider in return for a tax-free lump sum or regular income.
The type of equity release scheme that works best for you will depend on your individual circumstances. To find the most suitable scheme for you, you will need to take into account factors such as your age, property value, and financial situation.
It is worth noting that both types of equity release schemes will reduce the amount of inheritance you can leave. Before deciding on a scheme, it’s important to discuss the decision with family members or seek further advice, so that you can make the right decision for you.
The second type of equity release involves borrowing money using your home as security. This is called a lifetime mortgage, and it’s the more popular choice. The concept is similar to that of traditional mortgages, however, there is no requirement to make any regular payments, and nothing need be paid back until the final borrower has died or moved into care.
With lifetime mortgages, the loan gathers considerable interest, which can be paid off monthly or left to roll up and be paid from the eventual sale proceeds. You can also choose to make regular repayments of the loan amount if you choose to.
With either approach, your debt may rapidly rise. Before making any decisions, consider carefully and get professional advice.
Call Boon Brokers on 0333 567 1607 to discuss your equity release requirements.
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All equity release and mortgage advice is provided by Boon Brokers Limited, which is authorised and regulated by the Financial Conduct Authority (FCA). The Financial Services Register number is 973757.
If you take out a product with Boon Brokers, we will receive a fee for introducing you to them. Boon Brokers provides advice for free and without obligation. By contacting Boon Brokers through us, the cost of any equity release product would be the same as if you had contacted them directly.
The fee we receive is used to help keep this site operational and to produce new content.
Think carefully before securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage.
A key difference between equity release and traditional mortgage repayment is that equity release does not require regular repayments. With a lifetime mortgage, interest accrues over time and the loan is repaid when the property is sold.
This can provide retirees with greater disposable income, compared to traditional mortgages. However, the compound interest can lead to increasing debt and reduce inheritance value.
Before choosing between these options, independent advice should be sourced.
One appealing aspect of using equity release to pay off a mortgage, is that it can provide homeowners with additional disposable income.
This can be particularly useful for those in later life, who might have a lower income.
On the other hand, traditional mortgages may require significant monthly payments, often straining a homeowner’s budget.
However, there are also some potential downsides of using equity release to pay off a mortgage.
One major consideration is that equity release can lead to a debt that grows quickly due to the compound interest, significantly reducing the amount of money left for inheritance.
Before deciding between equity release and traditional mortgage repayment, homeowners should seek professional advice, usually through an independent financial adviser.
Understanding the costs involved when considering equity release is crucial to making an informed decision.
A key cost is the interest rates charged on the lifetime mortgage, with rates varying significantly depending on the specific equity release product and provider.
The second cost that will need to be considered, is the arrangement fee.
For example, some equity release lenders charge a fee for setting up the equity release plan. This fee can sometimes be added to the loan, of course increasing the total amount that you owe.
Other potential costs include valuation fees, solicitor’s fees, and advice fees. These fees can add up quickly and therefore must be factored into your overall cost assessment.
Finally, consider the impact of equity release on your long-term financial planning.
For example, equity release can affect your eligibility for means-tested benefits and can reduce the value of your estate. Therefore, before proceeding, it’s crucial to seek the advice of an equity release broker or adviser.
When contemplating equity release options, several legal considerations should be understood. First, equity release is a significant decision that can affect your financial future and that of your family.
Therefore, it’s recommended to seek independent legal advice before proceeding.
Equity release schemes must be carried out as a single legal transaction, which means you need to be fully aware of the terms and conditions before signing any contract.
Also, it is necessary that the homeowner’s right to remain in their property until they die or move into long-term care is protected in the contract.
Another legal consideration is the “no negative equity guarantee”. This is a rule enforced by the Equity Release Council, ensuring you or your family will never owe more than the value of your property when it is sold.
Lastly, if you have an outstanding mortgage on your property, this must be paid off either before or at the same time as taking out an equity release plan. This can be done using the equity released from your property.
Although the funds obtained through equity release are tax-free, there can still be tax implications for UK homeowners to consider.
For example, if you invest the money and earn interest, that interest is usually subject to income tax. Furthermore, equity release can affect your tax position and the size of your estate for inheritance tax purposes.
Releasing equity from your home can also affect your entitlement to means-tested benefits. This is because releasing a large lump sum could push your savings over the limit for certain benefits.
In instances like these, it may be best to make regular payments of small amounts.
Another tax consideration arises if you decide to rent out a portion of your home. In this case, you may have to pay income tax on the rent you receive, and you may also lose some of your entitlement to private residence relief for capital gains tax purposes.
As each person’s tax situation is unique, it’s recommended to seek professional advice. This will ensure that you understand the potential tax implications, allowing you to make an informed decision.
The table below shows you some of the best equity release rates, as at December 2023, for lifetime mortgages, from some of the leading equity release providers in the UK.
These rates may have changed since this table was updated and should be taken as indicative only. There may also be other providers not listed on this table that could offer better deals. In addition, the providers and products noted below may not be right for your particular circumstances. Therefore, we strongly recommend that you speak to an equity release adviser, who will be able to provide you with information on the latest rates, that are applicable to you.
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| Product Name | Interest Rate | Type of product | Offers |
|---|---|---|---|
| Just For You – J2.5 | 6.22% | Fixed | Free ValuationNo application fee |
| Just For You – J1 | 6.30% | Fixed | Free ValuationNo application fee |
| Premier Flexible Pearl | 6.43% | Fixed | Free Valuation |
| Premier Optional Payment Pearl | 6.43% | Fixed | Free Valuation |
| Horizon 240 Drawdown | 6.43% | Fixed | Free Valuation |
| Classic Drawdown Super Lite 2 | 6.47% | Fixed | Free Valuation |
| Horizon 260 Drawdown | 6.47% | Fixed | Free Valuation |
| Classic Elite Drawdown Super Lite 2 | 6.47% | Fixed | Free Valuation |
| Premier Flexible Pearl | 6.48% | Fixed | Free Valuation |
| Premier Optional Payment Pearl | 6.48% | Fixed | Free Valuation |
| Horizon 240 Drawdown Fee Free | 6.49% | Fixed | Free ValuationNo application fee |
| Classic Drawdown Super Lite 1 | 6.52% | Fixed | Free ValuationNo application fee |
| Premier Flexible Pearl | 6.52% | Fixed | Free Valuation |
| Premier Optional Payment Pearl | 6.52% | Fixed | Free Valuation |
| Classic Elite Drawdown Super Lite 1 | 6.52% | Fixed | Free ValuationNo application fee |
| Flexible Pearl | 6.53% | Fixed | Free Valuation |
| Optional Payment Pearl | 6.53% | Fixed | Free Valuation |
| Enhanced Lifestyle Flexible Option | 6.53% | Fixed | Free ValuationNo application fee |
| Horizon 260 Drawdown Fee Free | 6.55% | Fixed | Free ValuationNo application fee |
The equity release rates have been sourced from Equity Release Supermarket. These indicative rates and incentives may have changed since this article was last updated. Therefore, they should only be taken as a guide and we cannot guarantee their current accuracy. Please also note that we do not provide advice on or endorse any particular product listed here. The rate you are offered will depend on your individual circumstances and subject to lender approval. We recommend that you speak to an equity release advisor to see what the best options are for you.
If you take out a product with Age Partnership, we will receive a fee for introducing you to them. By contacting Age Partnership through us, the cost of any equity release product would be the same as if you had contacted them directly. The fee we received is used to help keep our site operational and to produce new content.
Releasing equity can affect eligibility for means-tested benefits such as Pension Credit and Housing Benefit. As mentioned previously, the released funds may push your total savings over the threshold for receiving these benefits.
For example, benefits such as Pension Credit and Council Tax Reduction could be affected if you release equity from your home. The same applies to benefits such as Universal Credit or Housing Benefit.
It is necessary to understand the potential impact on your welfare benefits before proceeding with an equity release scheme.
You may wish to discuss this with an equity release adviser or a welfare benefits specialist, allowing you to understand how this could affect you.
Although equity release can provide an appealing financial boost, there are several potential risks and downsides to take into account. One of the most significant risks is the impact on the inheritance you can leave.
As a loan secured against your home, the outstanding amount, including interest, will be taken from your estate when your property is sold.
Another risk is the possibility of negative equity, where the loan becomes more than the property’s value.
However, as mentioned previously, the Equity Release Council has a ‘no negative equity guarantee’, which means you won’t have to pay back more than your property’s sale value.
If you decide to repay your mortgage early, there is the further risk of repayment charges to bear in mind. These charges can be substantial, meaning that they should be factored into your decision-making process.
Another potential downside that has been outlined previously, is the impact on your tax position and eligibility for means-tested benefits.
You can use equity release to repay an interest only mortgage if you are between the ages of 55 to 95. You should make sure that your home has enough equity to be able to repay the existing mortgage. A lifetime mortgage calculator can be used to give you an idea of this.
You can then discuss your options with an equity release mortgage advisor and start your application process. While the process is ongoing, you will continue to make your monthly interest payments to your original mortgage lender, but when your application is successful, your solicitors will take care of the interest only mortgage for you. You will then have no further payments to make to your existing lender.
If you are still in the position of having enough disposable income to make monthly repayments, you could then consider taking out an interest only equity release plan. This can help to keep the total cost of the loan down and keep your finances balanced.
Given the complexities and potential risks involved, seeking expert advice on equity release is highly recommended.
This is because advisers can provide personalised advice. They can help you understand the different types of equity release schemes and recommend the most suitable option for you.
Legal advice is also essential when considering equity release. Independent legal advice can ensure you fully understand the contract and the potential implications of the equity release scheme.
Before choosing an adviser or broker, ensure that they are registered with the Financial Conduct Authority.
This means they are required to follow regulated practices and you have protection if things go wrong.
Furthermore, ensure your adviser can access products from across the whole market. This is because restricted advisers may be limited to recommending products from a single provider. Using an adviser who can compare all options may help you to identify the most suitable equity release plan.
Choosing to release equity from your home is a significant financial decision. Therefore, the consultation that an equity release advisor can offer is invaluable.
These professionals can guide you through how equity release works and help you to evaluate if it’s the right choice for your individual circumstances.
As outlined previously, an equity release advisor can provide you with an objective view of the various equity release products available in the market. They can also help you to understand the fine print of the equity release lender’s terms and conditions.
However, they can highlight potential issues, such as early repayment charges, which might arise if you decide to go for an early mortgage equity release.
Additionally, an equity release advisor can assist you in assessing whether you have enough equity in your home to meet your financial needs.
They can give you an idea of how much cash you can expect to release based on your property’s market value.
Remember that the Financial Services Register is a public record, detailing the firms and individuals who have been regulated by the Financial Conduct Authority.
An interest-only mortgage is a type of lifetime mortgage where you only pay interest to the equity release lender each month.
The loan itself is repaid when you die or move into long-term care.
For those who can afford monthly interest payments and wish to preserve as much of their property’s value as possible for inheritance, this is a beneficial option.
It’s important that you can afford the monthly interest payments for the foreseeable future. Remember, your home may be at risk if you can’t keep up with these payments.
Note that the amount you owe will not decrease over time with an interest-only mortgage, as you will still owe the same capital amount that was initially borrowed.
Therefore, this option may not be suitable for everyone, and getting advice from an equity release advisor is highly recommended.
Equity release is thought of as an effective way to save money, especially for those struggling to meet their monthly mortgage payments.
By using equity release to pay off a mortgage, homeowners can eliminate their monthly repayment, potentially freeing up a significant amount of disposable income.
However, as we know, there are still costs associated with equity release which you should be mindful of.
While you might save money in the short term, the interest accumulated can add up over time. Consequently, this leads to a larger repayment in the future.
There may also be advice fees associated with arranging equity release, which should be factored into your calculations.
Regardless of the potential savings, equity release should be considered as part of a broader financial plan. It’s crucial to seek professional advice to understand the long-term implications fully, whilst also ensuring that it’s the best option for your individual circumstances.
The amount of money you can release from your home is dependent on your property’s value. Generally, higher property values will allow for larger amounts to be released.
However, house prices can fluctuate, and a decrease in property values could affect the equity available in your home.
If your home’s value decreases significantly after you’ve taken out an equity release product, you could face negative equity. This is where the mortgage is more than the property’s market value.
However, as previously mentioned, products approved by the Equity Release Council come with a ‘no negative equity guarantee’, ensuring you won’t owe more than your home’s financial value.
While property values and house prices play a significant role in equity release, other factors such as your age and health can also influence how much you can release.
An equity release specialist can guide you through the process and help you to make an informed decision.
Equity release works by granting homeowners aged 55 access to some of the value in their property without having to move. The tax-free cash you release can be taken as a lump sum or in smaller amounts. The two main types of equity release are lifetime mortgages and home reversion.
A lifetime mortgage is a loan secured against your home.
The loan, plus accrued interest, is repaid when you die or move into long-term care. A home reversion plan, on the other hand, involves selling a portion of your home to a reversion company. Until you pass away or move into long-term care, you can continue living at the property.
A responsible equity release is one that is conducted following the guidelines set by the Equity Release Council.
This ensures that all equity release plans come with a ‘no negative equity guarantee’, meaning you or your estate will never owe more than the value of your property when it is sold.
The equity release provider must also give you the freedom to move to another suitable property without any financial penalties.
Lastly, responsible equity release involves seeking the advice of an independent solicitor of your choice. This ensures that you understand the plan and its implications fully.
A mortgage redemption statement is a document provided by your mortgage lender showing the outstanding amount you owe on your mortgage. It includes the principal loan amount, any interests accrued, and any fees for early repayment if applicable.
If you choose to use equity release to pay off your mortgage, the provider will request a mortgage redemption statement from your lender. This statement is used to determine the exact amount required to settle your existing mortgage.
Yes, your eligibility for means-tested benefits will be affected, as these are benefits that take into account your income and savings. If the released equity increases your savings to over a certain limit, it could affect your eligibility for certain benefits like Pension Credit or Housing Benefit. It is important to seek debt advice from a financial adviser.
Yes, there may be an advice fee associated with equity release. This fee compensates the adviser for the time that they spend understanding your needs, researching suitable products, and providing tailored recommendations.
Depending on the complexity of your situation and the specific adviser you choose to consult, the cost will vary.
The advice fee may be charged up front, or it may be added to your equity release loan. If added to the loan, remember that it will accrue interest over time. Consequently, this increases the total amount you owe. In some cases, advisors will waive the fee if you decide to proceed with the equity release plan that they recommend. However, this varies between advisers, so it’s something you should clarify at the outset.
The adverts for Boon Brokers on this page have been signed off as a Financial Promotion by Boon Brokers Limited, to ensure that they are in compliance with Section 21 of FSMA. Boon Brokers Limited is authorised and regulated by the Financial Conduct Authority (FCA). The Financial Services Register number is 973757.
Unlike most equity release advisors, Boon Brokers do not charge any fees! Have a free consultation to see how they can help.
You can speak to Boon Brokers on the number below and discuss your options
0333 567 1607
Use the equity release calculator and see how much money you could receive.
You can book a call back from for an equity release specialist, who can call you when it's conveniant
All equity release advice is provided by Boon Brokers Limited, which is authorised and regulated by the Financial Conduct Authority (FCA). The Financial Services Register number is 973757.
If you take out a product with Boon Brokers, we will receive a fee for introducing you to them. Boon Brokers provides advice for free and without obligation. By contacting Boon Brokers through us, the cost of any equity release product would be the same as if you had contacted them directly.
The fee we receive is used to help keep this site operational and to produce new content.
Think carefully before securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage.
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